This week has five monthly and quarterly economic reports scheduled that have the potential to influence mortgage rates. A couple in that group are considered to be key or very important releases. This weekend’s turmoil in several major cities looks to cause the week to start with stock losses and bond gains unless something changes overnight. It is safe to assume that we will have an active week for the financial markets and mortgage rates.
The Institute for Supply Management's (ISM) manufacturing index will start the week's activities at 10:00 AM ET tomorrow. This release is highly important to the markets as it measures manufacturer sentiment about current business conditions. A reading below 50 means that more surveyed manufacturing executives felt that business worsened during the month than those who felt it had improved. Analysts are expecting to see a 43.0 reading in this month's release, meaning that sentiment strengthened a little during May as states started to reopen. A lower reading will be good news for the bond market and mortgage shoppers while a larger increase could contribute to higher rates.
Tuesday does not have anything scheduled that we need to be concerned with. Wednesday has two releases set for release, starting with May's ADP Employment report before the markets open. It has the potential to cause some movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs, using ADP's payroll processing clients as a base. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a reaction to the report, we will be watching it. Analysts are expecting it to show that 9.5 million private sector jobs were lost during the month as a result of the pandemic and shutdown. The larger decline in jobs, the better the news it is for mortgage rates.
Also Wednesday morning will be the release of April's Factory Orders data that is similar to last week’s Durable Goods Orders report. This release also includes orders for non-durable goods such as food and clothing. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much of a change in rates. Current forecasts are calling for a 13% decline in new orders from March's level. Weaker manufacturing numbers make long-term securities, such as mortgage bonds, more attractive to investors. However, this data is normally considered to be only moderately important since a good portion of the data in it has been released previously.
Thursday brings us the weekly unemployment update at 8:30 AM ET in addition to revised 1st quarter Productivity and Costs data. The productivity data measures employee output and employer costs for wages and benefits. It is also considered to be moderately important because it helps us measure wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Last month's preliminary reading revealed a 2.5% decline in productivity and a 4.8% increase in labor costs. Thursday's update is predicted to show slight revisions. I don't think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from expectations.
The week's calendar closes with May's Employment report at 8:30 AM ET Friday. This extremely important report will give us key employment readings such as the U.S. unemployment rate, the number of jobs added or lost during the month and average earnings change. Analysts are expecting to see the unemployment rate jump to 19% with approximately 10 million jobs lost during the month. A higher than expected unemployment rate and a much larger decline in payrolls would be favorable news for the bond market.
Overall, Friday is the most important day of the week due to the significance of the Employment report, but we could also see a noticeable change in mortgage rates tomorrow after the ISM report. The calmest day for rates may be Tuesday unless something unexpected happens. With some very important data on tap this week, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.